Underbanked may build credit rank via neobanks

BY transacting through digital banks—so-called neobanks—the underbanked segment in the Philippines can build credit score, allowing access to more financing in the long term, a financial technology (fintech) executive said.

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While neobanks and credit scores have an indirect relationship, CredoLab Pte. Ltd. Founder and CEO Peter Barcak said the former allows more opportunities to create credit history.

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“Through AI [artificial intelligence]-based credit scoring algorithms, digital-only banks offer greater accessibility to Filipinos even in the most rural areas,” he said.

The AI tool enables creditworthiness to be assessed using smartphone metadata.

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“This non-intrusive privacy-consented data is used to detect predictive patterns, giving the underbanked an opportunity to leverage banking services they otherwise won’t be able to access,” Barcak explained.

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The alternative credit scoring scheme is allowing borrowers to make and complete purchases, Barcak noted, which then contributes in increasing credit scores.

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“By working with neobanks utilizing credit scoring technology, Filipinos can have greater access to personal credit or credit for future business endeavors,” he added.

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In this way, financial inclusion will further be promoted in the country as well, Barcak said.

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On the other hand, Barcak explained that having an alternative credit scoring system will also discourage borrowers from dealing with loan sharks or informal lenders who charge exorbitant fees.

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“Oftentimes, such alternatives put consumers and their long-term finances at risk,” the CredoLab official said. “With the emergence of neobanks, consumers no longer have to turn to such risky alternatives.”

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In the Philippines, Barcak said that the digital banks can fill in some of the gaps in banking service demands, offering affordable and accessible financial products.

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“In a country as young and digital-savvy as the Philippines, it comes as no surprise that 15 percent of Filipino adults, or 10.2 million Filipinos, currently have a digital-only bank account,” he added.

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Last month, the fintech player announced its partnership with local digital bank Tonik Financial Pte. Ltd. to provide quicker loan application process. CredoLab’s artificial intelligence-based algorithm is set to be incorporated on the neobank’s mobile banking platform, providing Tonik credit scores in real-time.

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Originally published in Business Mirror PH.

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